In Bakken Oil Boom, Oil Hunters Diverge on Strategy

North Dakota's oil market is booming, but exploration and production companies are shying away from paying the high cost of entry.

NEW YORK ( TheStreet) -- References to oil rig workers sleeping in the beds of their pickup trucks in McDonald's parking lots have become synonymous with the oil boom of North Dakota.

However, all acreage is not created equal in the oil and gas exploration and production (E&P) business, and that's becoming a much more important investing dictum -- and dividing line for E&P stocks -- in one of the biggest U.S. oil booms in history.

Recent earnings from a wide swath of E&P companies operating in North Dakota show how quickly and broadly strategies to tap the North Dakota play are diverging. Crude oil prices have moved up significantly this year from what was already attractive pricing for E&Ps in 2011. However, costs in North Dakota continue to be a headwind for many E&P companies. Even if costs per well in the North Dakota Bakken have reached a peak between $9 million and $10 million, the costs are not declining.

As E&P stocks continue to ride the crest of high oil prices, it becomes more important for energy stock investors to weigh potential reward from North Dakota drilling versus too much reliance by any one E&P on what remains a high cost play.

More and more U.S. oil is coming from North Dakota, but energy stocks may be getting too much credit for the boom relative to the costs.

"The bloom is off the rose. The land grab is over," said Sterne Agee analyst Tim Rezvan.

Chesapeake Energy ( CHK), the poster-child for the U.S. oil and gas acreage land grab, revealed in its recent earnings that some of its Williston acreage in North Dakota had been a disappointment and it was redirecting assets, chasing E&Ps like Whiting Petroleum ( WLL), which has operated in "sweet spots" within the North Dakota oil play.

"We drilled a couple of wells up there and we're not crazy about what we found to date, so kind of recalibrating there ... And I suspect the western part of our acreage, which kind of abuts where Whiting is operating, will probably work out fine," Chesapeake CEO Aubrey McClendon said.

Other sizable E&Ps with acreage across the U.S. are simply pulling out of North Dakota for the time being because of high costs leading to inferior returns relative to other regional assets.

EOG Resources ( EOG) and Occidental Petroleum ( OXY) both cited the high costs of operating in the Bakken as reason for redirecting capital in 2012.

EOG noted in its earning call that even though it has a built-in advantage in the Bakken with a transport system that reduces cost relative to peers, it is still de-emphasizing this play in the current environment.

"In the North Dakota Bakken, we continue to achieve consistent results, and the play contributed to the 13% total liquids growth realized in our overall Rocky Mountain operating area in 2011 over 2010," the company said. "We're reducing our Bakken rig count in 2012 because a majority of our acreage is now vested, and we, therefore, expect 2012 volumes to decline a bit. Some analysts have recently noted that Bakken economics may be less than stellar for many companies."